As manufacturers optimize their payment processing operations, they may consider zero-dollar authorizations for certain transactions. Zero-dollar authorizations let them confirm that the customer has provided a valid method of payment, without actually charging it at that specific point in time. This may be useful if a product that the customer has purchased is backordered and not immediately available to ship, or if they make products to order and do not want to charge the card until the order has been fulfilled.
What is a Zero-Dollar Authorization?
A zero-dollar authorization is a preliminary check on a customer’s card. No money is specifically deducted from the cardholder’s account, but it does allow the merchant to confirm that there are available funds and that the card is active. They can charge $0 now, then the full amount once the order is fulfilled.
Once the authorization has been completed, the merchant receives a token that they can use once they’re ready to move forward with the full charge. They do not have to store the original card number on their system or deal with the associated security and compliance burdens.
Why Should Manufacturers Care about Zero-Dollar Authorizations?
When manufacturers don’t use zero-dollar authorizations, they have to hold an authorization for a specific amount open for an indeterminate amount of time. This can be less than ideal for several reasons:
Card Network Rules
Seven days is often the time frame that card networks require transactions to be settled. If you don’t settle the authorization within that window, it is considered “stale” or “expired”, even if the funds were initially held.
Downgrades and Increased Costs
When an authorization goes stale, the transaction could be processed with a higher interchange rate. This is called a downgrade, resulting in higher fees for the merchant. Some cases even call for the transaction to be rejected, which could increase the risk of revenue loss. Additionally, customers may be more likely to question transactions that have sat open for a prolonged period of time, increasing the potential for costly chargebacks.
Reduced Risk of Filling Orders Without a Valid Method of Payment
Zero-dollar auths help manufacturers flag suspicious or fraudulent cards before goods are shipped or services are provided. (This is crucial for any transaction, but especially high-value orders.)
Compliance with Payment Network Standards
Major card networks like Visa and Mastercard encourage using zero-dollar auths rather than small-value authorizations (i.e., $1 or $5) for pre-checks.
Improved Operational Efficiency
Spending a week fulfilling a custom order – only to find out that the customer never provided a valid method of payment – is a preventable waste of resources. Reducing failed payments at checkout (whenever the final amount for the transaction is known) leads to lower risk and smoother operations.
Learn More About Using Zero-Dollar Authorizations for a More Efficient, More Reliable Experience
Make your payment operations as efficient as possible. Contact Curbstone to see how zero-dollar authorizations (and other proven strategies) can help your manufacturing business.
